Olakunle Olafioye and Henry Okonkwo
The plan to return Nigeria’s budget to January-December cycle began last Tuesday with the presentation of the 2020 Appropriation Bill by President Muhammadu Buhari to the National Assembly. Tagged Budget of Sustain Growth and Job Creation, the executive proposed a total of N10.33tn for the 2020 fiscal year. The amount represents N1.4tn higher than the N8.9tn approved by the National Assembly for the 2019 fiscal year. The breakdown of the proposal shows statutory transfers of N556.7billion, recurrent expenditure of 4.88 tn and N2.14tn as capital expenditure. It also shows an estimated debt servicing of N2.45tn debt with a provision of N296bn for the sinking fund to retire maturing bonds issued to local contractors.
Beyond the proposed return of the nation’s fiscal year to the January-December cycle, not a few experts have expressed reservation on the possibility of the 2020 fiscal document to stimulate the desired economic growth and job creation considering the key assumptions on the proposed revenue lines. The President while addressing the joint session of the National Assembly had proposed an increase in VAT rate from five per cent to 7.5 per cent. Oil benchmark was put at $57 per barrel while oil production estimate of 2.18 million barrel per day was proposed.
Dr. Nnaemeka Obiaraeri, investment and financial analyst, said the proposal does not bode well for Nigerians in the coming fiscal year. “What they presented is not a budget. Rather, what they did is to conjure up their usual voodoo numbers in economic sorcery and then tag it a budget of sustainable growth and job creation.
“Just look at the assumptions. Then take a look at the revenue lines in the light of the practical realities that stare us in the face. Crude oil today is trading at $58/barrel for the Brent. Output over the last 2 years has never hit 2.1m barrels per day, yet they have an ambitious assumption of 2.18m per day when there are no new mega producing wells on the horizon.
“We have not even addressed the challenges of the perennial crude oil theft of about $1.6bn per annum. Endless theft that has continued unchecked because they have refused to meter the wellheads and all the key crude entry and exit lines,” Obiaraeri stated.
Speaking in the same vein, Mazi Okechukwu Unegbu, former President, Chartered Institute of Bankers of Nigeria, also faulted government’s revenue projection as contained in the 2020 fiscal document. Okechukwu who queried the rationale behind the projection, said the drafters of the document failed to factor happenings in the international oil market into the proposal.
His words: “The revenue projection is faulty from my own calculation. Last year they projected 2.3 millions barrel per day. As at now we have not even hit 2 millions barrel per day and you are projecting 2.18 millions bpd. It will definitely go out of balance because they fail to consider happenings worldwide and their effects on our oil. And already we are noticing decline in oil prices in the oil market. That of 2020 may be negative and if that happens, that budget will be defeated. I wonder if some of the people doing these things are aware of the various distortions in the international market. So I don’t know how they are going to solve that.
VAT increase lacks justification
Experts say the 50 per cent hike in the value added tax (VAT) is equally bemusing with many querying the basis for the increase at a time the newly approved national minimum wage is still outstanding. Okechukwu pointed out that the increase in VAT would prove to be another major obstacle to the implementation of the 2020 budget. “The budget is all about taxation and if we keep taxing the people like this when you have not been able to pay the new minimum wage. Now you have closed the borders and you claim you are making more money when people are not producing yet you have increased the VAT to 7.5 per cent. To me, the 50 per cent increase in VAT is counterproductive. I believe there is a need to look at the budget very well so that whatever can be done to ensure at least minimum growth is done.
“As long as you continue to lose the labour, you will continue to lose taxes. But if you grow the labour force, grow production, you have the chances of good tax not increasing tax in a situation where you are losing the factors of production, it will never work. The budget was done oblivious of factors that can affect the budget of a country,” Okechukwu said.
On his own part, Obiaraeri queried why the common man must be made to bear the brunt of the government’s ineptitude in tackling corruption and economic sabotage. “Who are they even going to tax? The over 98 million extremely poor Nigerians, with that number growing by the day? Or is it the small and medium scale businesses that are closing shop daily in tens and hundreds? How will they generate the 44 per cent increase in the VAT rate, when the fiscal plans of the governments are not designed in any form or shape to grow industries, jobs, revenues, disposable incomes of the population and then consumption.
He pointed out that a budget deficit hole of almost N5trillion to N6trillion stared the nation in face. He reasoned that the deficit could be more when the minimum wage is factored into the proposal. “If you look at the actual budget performances for 2017, 2018 and what we have seen so far in 2019, you will shiver in trepidation. In one of these years above, the CBN reported that we sold over N11.2trillion worth of crude oil. However, the only amount that came into our federation account from this N11.2trillion crude oil proceeds was N2.3trillion. Out of this N2.3trillion that came into the federation account from crude sales proceed, the FGN statutorily took their 52% share of N1.208trillion. Out of a projected FGN total revenue of over N7.6trillion that year (both oil and non-oil revenues), the only revenues that came into our FGN account was a fraction of above N3trillion. We underperformed on the revenue side in actual sense and reality by over 50 per cent.
“The only way Nigeria cannot go the way of Venezuela is for us to totally remove the petroleum subsidies, totally liberalize the downstream oil and gas sector, stop the bogus PMS ghost import figure and totally sell off the three refineries to private sector operators. This is the only way we can free up cash to fund this budget,” he concluded.
But for Dr. Abdullahi Ya’u, chairman board of trustees, Association of Financial Analysts of Nigeria (AFAN) it’s not all gloom and doom. According to Dr. Ya’u, who is also the chief executive of Budget Advocacy and Reforms Association (BARA), the budget, if well implemented, would impact positively and improve the lot of the common man. “In regards to the volume of the budget, there has been an increase in this year’s budget to boost more economic activities. So it’s a welcome development and it’s a move in the right economic direction,” he noted.
Ya’u, however, raised concerns on some aspects of the budget: “It is worrying when you look at the volume for servicing debts and the expected deficit. We are expecting to make revenue of N8.15trillion, and the expenditure is over N10. 33trillion, this means we are expecting a deficit of N2.18trillion. And when you look at the debt servicing, it’s at N2.45 trillion. So if you look at the budget for debt servicing and the deficit you’ll notice just a few billion different. So it’s almost like you’re collecting what you’re paying back in debt. So your debt position has not significantly improved. And this would affect our ability to garner more foreign reserve for our future.
“We want a situation where the government would look at creating less deficit and focus on servicing debts, so that our balance sheet would be improving.
Ya’u also expressed concern over the increase in taxation. “The increase in VAT to 7.5% is like collecting back from the people what you have given to them. I suggest the increase in tax should go to high networth individuals that won’t feel the pinch. That’s what they did in India,” he said.
Dr Tayo Bello, a monetary and development economist, said a situation where the amount budgeted for debt servicing is higher than the amount allocated for capital expenditure is disturbing. “It is very worrisome to realise that the money allocated for debt servicing is higher than the amount allocated for capital expenditure,” Bello opined.
The way out
Experts are unanimous on what they consider as the only way out. They are however quick to add that the available option is not entirely without its own loophole. Obiaraeri put it succinctly: “The easiest window of escape that I see here is that the CBN Governor, Emefile may be forced to print more notes and widen the already gaping hole of over N4.45trillion at the CBN.
“This is not how to budget for truly inclusive and sustainable growth. Unless what they have in mind is to massively include more Nigerians into the extreme poverty trapdoor, by increasing the entry run rate in the number of the extremely poor Nigerians from an average of six persons per minute to 10 persons per minute in the next one year. Nigeria is in a very very deep economic mess,” he declared.
Despite the doubts trailing the workability of the 2020 fiscal year, the Nigeria Employers’ Consultative Association (NECA) has commended the Federal Government for the presentation of the 2020 budget estimates to the National Assembly. The Director General of the association, Mr. Timothy Olawale, said the early presentation of the budget to the legislature is highly commendable even though there is room to improve further on the timeline.
He expressed hope that the lawmakers would also do the needful by expediting action on the budget with the good of the citizenry as the sole driver. “Our expectation is that the budget should be back to the President for assent or comments on aspects that require tinkering with by second week in December, so that by the first week of January 2020, it would be ready for implementation.
The NECA boss urged that “beyond the presentation of the budget, greater commitment is expected from the National Assembly so that the budget will not suffer the usual padding controversy, leading to unnecessary bickering between the Presidency and the National Assembly.”
“If we truly want to get the country on the track of economic prosperity as soon as possible, we need to accord extreme importance to the early passage of the budget. There has to be a defined time frame, which should be religiously followed as seen in other countries. As stated by the President, priority should be given to on-going projects before new ones are started and a sound monitoring and evaluation mechanism clearly defined for the successful implementation of the budget when passed into law,” he said.